Closer Economic Ties Will Help South Asia Tap Full Economic Potential, Senior ADB Official Says

NEW DELHI, INDIA - India's economic performance in the past two decades has been remarkable, but closer subregional integration would help the country and its neighbors to achieve their full economic potential, a senior ADB official told a press briefing today.

Rajat Nag, Director General of ADB's Southeast Asia Department and Special Advisor to the President, said the process of regional economic cooperation and integration in South Asia has been slow and there was significant scope for expansion of trade and closer economic ties.

Mr. Nag, who takes over as ADB's new Managing Director General on 15 December, is in India to participate in the India Economic Summit organized by the World Economic Forum.

"Asian countries have come to realize that by working together they can speed up the process of development, both individually and regionally, and thus more effectively combat poverty," Mr. Nag said.

"A significant expansion of intraregional trade and integration within South Asia would offer immense opportunities for sustaining high growth and reducing poverty in India and the rest of the subregion."

Forming a common South Asia market will further increase India's market size by 30%, he added.

South Asia, led by India and Pakistan, posted stellar growth in 2005 and has registered average higher growth than its peers in Southeast Asia in the past five years. Along with the People's Republic of China, South Asia is emerging as a new engine of growth in Asia and the Pacific.

With complementary export baskets, South Asian economies can raise intra-industry trade and eventually develop a regional supply chain with India, already a key service center for the global economy, as its main assembly point and export window to the rest of the world.

To achieve this goal, South Asia needs massive investment and rapid elimination of trade barriers to ensure that production specialization in each economy will be driven by its comparative advantages.

Mr. Nag said South Asia can benefit from the experiences of closer regional cooperation and integration in East Asia. "Trade liberalization, tariff reductions, increases in foreign investment and declining transport costs have all contributed to a more integrated East Asian economy and created significant new opportunities for global businesses," he said.

Intraregional trade now accounts for 55% of East Asia's total trade, comparable to that of the European Union before the 1992 Maastricht Treaty, he pointed out. In contrast, South Asia's intraregional trade accounts for just 5% of its total trade.

Regional cooperation and integration would serve as a powerful instrument in promoting a better subregional and national growth balance, addressing some serious poverty and inequity issues, Mr. Nag pointed out. And it will be a win-win situation if South Asia can optimize the energy supply mix of the region, given that the future energy needs in India alone are expected be enormous.

"While integration with its neighbors will benefit India, ensuring economic growth is balanced and inclusive is also absolutely crucial," Mr. Nag told the press. "An integrated and inclusive India will do far better and this applies to rest of Asia as well."

"Considering the different stages of countries' development, the next steps will necessarily be different within and among the countries in South Asia," said Mr. Nag. "To my mind, what we need is a 'multi track, multi speed' approach to enhancing the subregional cooperation agenda in this region."